Make Friends With FICO – A Credit Report Breakdown in Greater Chicago

FICO is a mathematical model that evaluates your credit file and determines your financial reliability by assigning you a number, or FICO score, between 300 and 850. At a glance, FICO may seem a bit judgmental to let into your inner circle. A friendly relationship with FICO, however, gets you everything from reduced insurance premiums to the lowest rate mortgages. How many of your other friends can make that happen? Familiarize yourself with the following and you’ll be well on your way to either repairing or establishing a fruitful friendship with FICO.

Payment History

To say this category is a big deal is an understatement. It’s worth 35% of your score, so pay all of your bills on time. To put this in perspective, if you have a 760 FICO score, you’ll likely qualify for the lowest rate mortgage. Drop 100 points (after one skipped or late credit card payment) and your mortgage rate quote could increase by 1%. That rate jump will cost you over the life of the loan. So, whether you need to set-up automatic payments to guarantee you’re never late or tie a colorful string around your finger, do whatever it takes to get your bills paid on time every month.

Total Debt

A high credit card debt load works against you, and this category counts for a whopping 30% of your FICO score. Mortgage lenders like to see a usage ratio below 25%, so keep your balances as low as possible compared to your available credit. The best strategy here is to pay down your debt. If you need a little ratio boost, you can also contact your oldest card and request a credit line increase. Just be careful not to use any credit gains. FICO won’t like that.

Length of Credit History

The longer you have an open account, the better. Lenders want to see established relationships and a solid history with creditors. While there’s not much you can do to speed up credit history, you can stay mindful and not cancel your oldest credit cards. Luckily, this category only counts for 15% of your score, so just be patient and don’t burn any bridges.

Inquiries

Multiple requests for credit means you’re a greater risk in the eyes of FICO. As 10% of your score, FICO consistently reviews the number of “hard” inquiries, or requests for credit, in a given period. To keep this category clean, don’t apply for multiple credit cards in a short period of time. For installment loans such as a mortgage, squeeze your applications into a 45-day period. That way, your rate shopping will only count as a single inquiry.

Number of Accounts / Credit Mix

FICO looks at both the quality and quantity of each type of account. Ideally, you’ll have a mix of installment (mortgages, car loans, student loans) and revolving accounts (credit cards). This category is only 10% of your score, but an “off balance” debt mix can hurt you.

Delinquencies

We can’t lie. Delinquencies are not good. They usually stay on your credit report for seven years, even if you paid the debt after delinquency. Treat this category like a woman scorned. Heck, one of your delinquent accounts might even be named Sallie Mae. Anyway, a woman scorned is not very forgiving, but she will eventually forget. Your best bet? Just let her be and focus on the categories you can improve. Oh, and behave yourself in the future.

Hopefully this explains any mysteries surrounding your FICO score. To see where you stand in the above categories, get a free copy of your credit report here. This copy won’t include your FICO score, so if you’re preparing to buy a home and want to know exactly what FICO thinks of you, contact us below or at 708-531-8388. United Home Loans will be happy to give you a free copy of the official FICO credit report used by lenders.